​ Circuit Court denies request to rehear MRES GFA 496 carve-out case

On Tuesday, May 14, the U.S. Circuit Court of Appeals denied an MRES request for rehearing of a case regarding Granfathered Agreement (GFA) 496. MRES was seeking carve-out status for this agreement, which had provided transmission service rate relief from 1977 until October 2015 when MRES joined the Southwest Power Pool (SPP). In March, the Court had issued a ruling in the case that was unfavorable to MRES.

A 1977 agreement between Basin Electric Power Cooperative and the Nebraska Public Power Disrict (NPPD) was executed so that Missouri Basin Power Project participants, including MRES, could move their respective shares of Laramie River Station power to their loads. That agreement did not allow NPPD to collect congestion costs and losses. However, since MRES joined SPP, NPPD has been charging MRES for congestion and losses at a cost of about $5 million per year.

MRES has been using the SPP market since 2014, but prior to joining, it had done so as a non-member. However, in 2015, the Western Area Power Administration (WAPA) joined SPP. WAPA provides a significant share of the MRES members’ power supply and, by joining SPP, WAPA also placed its share of the Integrated System transmission facilities into the SPP transmission network. Because MRES uses these facilities to deliver power to its members, MRES was effectively compelled to join SPP as well.

The court case stemmed from an earlier decision from the Federal Energy Regulatory Commission (FERC) that said the SPP tariff allowed for collection of congestion and loss charges. “We tried to settle this before we joined SPP, but were not allowed to do that since we weren’t yet in the SPP market,” said MRES Power Supply and Operations Director Ray Wahle. “Then, once we joined SPP, FERC said we submitted our GFA carve-out request too late.” The GFA 496 carve-out, if granted, would have kept in place the terms of the agreement that were in effect before MRES began participating in the SPP market.

Another Missouri Basin Power Project participant, the Lincoln Electric System, was granted GFA carve-out status for its share of Laramie River Station. Even though FERC staff had recommended approval of the GFA 496 carve-out for MRES, FERC commissioners said the SPP tariff was not sufficiently clear and that, because of the MRES timing in joining SPP, the MRES case was different than the Lincoln Electric System case.

FERC acknowledged that excluding the MRES transmission reservation from carve-out resulted in a disparity in treatment between MRES and Lincoln Electric. FERC, though, concluded that there was no undue discrimination because MRES and Lincoln Electric are not similarly situated with respect to the Pool’s congestion and marginal loss charges. Specifically, FERC explained that Lincoln Electric was a member of the Pool when the Pool changed its tariff to impose those charges (and was therefore “subject to a forced transition” to a Tariff with the charges), whereas MRES joined the Pool after the tariff was changed to incorporate those charges. In light of that difference, FERC determined, it was permissible to treat the two entities differently.

MRES sought rehearing by the DC Circuit panel and/or rehearing en banc (by the whole court). Such requests for rehearing are rarely granted, but given the annual market impact to MRES of approximately $5 million per year, and duration of the agreement extending through 2040, MRES determined it was prudent to make the request.

At the same time, MRES CEO Tom Heller explained that, “While the loss in the court is significant, the cost of not having the GFA carved out for market congestion and losses will not have an additional negative impact on MRES rates,” said MRES CEO Tom Heller. “That is because MRES has already been incurring those costs since we joined the Southwest Power Pool.”

Heller, in a memo to the MRES and Western Minnesota Municipal Power Agency Boards of Directors, said that the Court’s “decision fails on many grounds: It merely repeats the FERC brief, and does not respond to many of our arguments,” Heller wrote. “By way of example, only where the Court refers to MRES ‘business partners’ (a concept that we explained to the court was incorrect), it never responds to the argument that FERC failed to articulate a basis for its selection of interpreting an ambiguity (supplying an explanation themselves); it rejects the claim of undue discrimination, because it concludes that Lincoln Electric System was subject to a forced transition while MRES ‘joined the Pool,’ ignoring the fact that the issue was about transmission services, not membership in Southwest Power Pool (SPP) and MRES had no more choice than Lincoln Electric; and it asserted that the new charges were for new services available as a result of joining SPP, contrary to the evidence.”